Principal Issues: Whether, in a particular situation, the exemption under paragraph 55(3)(a) of the Act could apply so that subsection 55(2) of the Act would not apply to a dividend deemed received by a corporation on the redemption of the shares of another corporation.
Position: Yes, provided, however, that subsection 55(4) would not apply. In the particular situation, the father, each of his children and each of the corporations involved would be related to each of the dividend recipients at any time. The fact that the children would be deemed not to be related to each other pursuant to subparagraph 55(5)(e)(i) would not have an impact provided that each of the children would nevertheless be related to each dividend recipient at any time. A determination of whether subsection 55(4) applies in a particular situation can only be made following a review of all the facts and circumstances surrounding such a particular situation. Consequently, it is not possible to provide an opinion that subsection 55(4) would not be applicable in the circumstances. However, the Directorate has confirmed in the past, in the context of Advance Income Tax Rulings, that subsection 55(4) did not apply. For example, the Directorate has confirmed in the past, that subsection 55(4) did not apply in certain particular situations where it was shown that a parent was maintaining control of a corporation newly incorporated by a child of the parent mainly for the purpose of protecting his or her economic interest in the new corporation and that none of the main purposes of the transactions or events was to cause 2 or more persons to be related to each other so that subsection 55(2) would not apply to a dividend.
Reasons: Wording of paragraph 55(3)(a) and subsection 55(4) of the Act. Past positions.